MRI - What is Risk Lesson

What is Risk?

Risk is the likelihood or potential that a certain course of action will result in a loss of some sort. Risk is all around us. Some risks are frightening, such as the risk of having cancer. Some risks are merely irritating, like the risk of losing a sock in the washing machine. The greater and more expensive the risk, the more we will want to do something to protect ourselves and manage the risk.

Risk has three components. First, there must be an event that might cause harm. These are all around us. Driving, working, and even leisure time can be the stimulus for such an event. Second, there must be an undesirable outcome. In other words, something that causes us to be harmed physically, materially, or financially. The final component of risk is probability. That means: "What are the chances that this will happen?"

Some risk events have a high probability of happening, but our loss is so minimal we don't even try to manage it. Remember the socks in the washing machine? Other risk events would cause great damage and loss, but the probability of the event taking place is so small we would ignore the event.

In other words, think of the possibility of a flood in a desert. In between those two extremes are all kinds of risk events that we might consider managing. We will look at managing risk in our next topic.  

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